(Bloomberg) — Portfolio manager Patrick O’Shaughnessy was talking with friends last year when he told them he invests only in stocks.
“They thought that this was an incredibly risky proposition,” said O’Shaughnessy, 29, of O’Shaughnessy Asset Management in Stamford, Connecticut, which has about $7 billion under management. “I found pretty universal skepticism.” He plans to publish a book this year on young people’s finances.
While investing in equities has dropped across the board since the recession, so-called millennials born after 1980 have continued to forsake the market even as it rebounds, according to a Gallup poll taken April 3 through April 6. Just 27 percent of 18- to 29-year-olds reported owning shares outright or in funds, down from 33 percent in April 2008, the survey found.
The aversion means the group is missing out as major indexes reach records, potentially imperiling their future financial security, especially at a time when these Americans are also shunning investments such as real estate. Instead of plunging into stocks, which can provide better returns over the long run, young people are stashing savings in bank accounts and securities that pay near-zero interest.
“We call them Recession Babies,” said William Finnegan, a senior managing director at MFS Investment Management in Boston, drawing a parallel to “Depression Babies” who avoided banks and investing after the 1929 crash. “If the cumulative return of the past five years didn’t convince you that the stock market might be an OK place to be for a long-term investor, I’m not sure what else is going to. These folks have been scarred.”
As the oldest millennials approached college graduation in 2002, they witnessed a 78 percent plunge in the Nasdaq index as the bubble in technology shares burst. As they reached their mid-twenties in 2008, the Standard & Poor’s 500 Index dropped 38.5 percent, the worst single-year performance since 1937. The gauge dropped 57 percent from October 2007 through March 2009.
“It’s not as bad as the Great Depression, but if it’s your first adult experience, it’s making you cautious,” said Jeff Scott, head of market research for UBS Wealth Management Americas in Weehawken, New Jersey. “I don’t think there will be a complete jump-back moment. It’s a permanent mind shift.”
About 46 percent of millennials with more than $100,000 to invest say they will never be comfortable in the stock market, MFS, with $423 billion under management globally, found in a survey released in February. About 52 percent of 22- to 32-year- olds said they are “not very confident” or “not at all confident” putting money in equities for retirement, according to a February 2013 survey by Wells Fargo & Co.
Affluent millennials hold 52 percent of their money in cash and 28 percent in stocks, compared with 23 percent and 46 percent for older people, a UBS survey released in the first quarter found. The study focused on 21- to 29-year-olds with $75,000 in income or $50,000 in investable cash, and 30- to 36- year-olds with $100,000 in income or assets.
“They are risk averse, so they have the most conservative portfolio profile of any age bracket under 65,” said Neil Howe, founding partner of LifeCourse Associates, a consulting service for generational marketing and workforce issues. Howe is credited with coining the term “millennial.” “They look at the stock market and they see nothing but danger,” he said.
Last month’s Gallup poll found that 54 percent of all those surveyed reported holding stocks, down from 62 percent in April 2008. Older groups have begun to make a turnaround.
Among 30- to 49-year-olds, a group that includes most of Generation X and the oldest millennials, about 67 percent hold stocks this year, up from 58 percent in 2013, said Frank Newport, Gallup’s editor-in-chief. For those under 30, comprised solely of millennials, ownership was unchanged at 27 percent.